Without subsidies or substantial restrictions on private plans, how do you account for adverse selection? Presumably a private plan would want to design its benefits so that the most expensive beneficiaries go to the public plan. What's to stop this while maintaining diverse private offerings?

That graph you show on cost trends is actually somewhat deceiving in that the populations are so different.
Medicare, as you point out, only treats the elderly who use far more, and far more expensive, healthcare resources (implants, drugs etc) than the general population. Those resources also show the steepest cost curves. If you were to look at what a public plan would do for cost containment in a population equivalent to the private insurers', the results would be far more dramatic.

That aside -- why haven't insurers been forced to release some kind of scrubbed claims data? All sorts of other industries are forced to release data that could be called proprietary. Why not insurers? Or has nobody ever tried?

I would love a public plan. I would love to argue for with my mother-in-law, but how much would an individual policy cost? I know what I am paying for healthcare now but I never see estimates on what a public plan would cost per policy.
How much would medicare cost if the government were not subsidizing it?

How do you account for cost-shifting? We don't have "Medicare" hospitals--Medicare patients are treated in the same hospitals and health settings as private-pay patients, and money is fungible within these institutions.

Medicare is a monopsony purchaser for a significant part of the health care market: old people's health care.

How do we know that Medicare isn't simply taking advantage of its monopsony hold over a major part of the health care market and paying health providers less than the cost of treatments, leaving them to recoup the balance by driving a harder bargain with other patients?

It makes sense to me that I can't turn away the purchaser who covers 30% of the procedures in my market even if I take a small loss per case, but I can turn away the insurance company purchaser who covers a smaller percentage if he refuses to pay me well over my cost.

The footnote on this graph in Hacker's paper reads-

"The pioneering analysis of Medicare and private health insurance growth rates is Cristina Boccuti and Marilyn Moon, “Comparing Medicare And Private Insurers: Growth Rates In Spending Over Three Decades,” Health Affairs, March/April 2003; 22(2): 230-237. This analysis follows Boccuti and Moon’s recommendations of focusing on long periods of time and comparing spending for comparable benefits. However, rather than look at the cumulative growth in per enrollee spending from a base year, as Boccuti and Moon did, this analysis simply follows the convention of the National Health Statistics Group of the Office of the Actuary of the Centers for Medicare & Medicaid Service and calculates the annual compound growth rate of per enrollee spending for Medicare and private health insurance for “common benefits.” Common benefits are hospital services, physician and clinical services, other professional services and durable medical products. They exclude prescription drugs."
ourfuture.org/hacker

You talk about competition, but I don't choose what plan I'm in - my employer does. If I decline my employer-subsidized plan I have to pay 100% of the premium of an alternative plan out of pocket (AFAIK). Without putting control of plan selection in the hands of insureds rather than employers, what bases can plans really compete on, other than premiums? And is it really wise to make that the *sole* basis of inter-plan competition?

Is it realistic to think that the insured selection restrictions in the group health context (e.g., the group health insurer can't turn down someone with a preexisting condition if they move from another employer/policy, everything is covered after a year, etc.) would survive if there was a reasonably affordable public plan option? And if not, what will stop this from leading to a death spiral?

My question would be "Why isn't more effective regulation enough?" but he anticipated that and gave an insufficient answer: 1) monopsony purchasing (so maybe the question should be-- why is this a good thing?) 2) to set a benchmark for private plans (why isn't being the best of 1000 private plans enough?). I'd ask him to take another crack at this-- his current answer isn't really compelling.

PS anonymiss' question should be one of the 5. Medicare's "bargain" may be all fool's gold.

It makes sense to me that I can't turn away the purchaser who covers 30% of the procedures in my market even if I take a small loss per case

I don't get this. Why wouldn't a provider refuse to take Medicare if he absorbed a loss on each case? Now, if he had to accept Medicare losses in order to get a crack at the non-Medicare profits, then that's a decent answer -- but this isn't how our system works.

Hacker’s arguments confirm the vibe in the public health world that the Massachusetts model for universal coverage is going to win out over the Obama plan. Now, those two plans are largely the same with one key difference; in both cases universality needs to be achieved by adding another payer into the mix. Employer-based coverage and public payers can’t just be expanded; there are simply too many gaps. The Obama/Clinton model extends the federal employee insurance as the new payer, the Massachusetts model, however, brought the free market into the picture creating a miniature version of a new public payer and insurance companies competed to participate as carriers of the new public plan in the same way that the Aetna’s, United’s and Humana’s of the world compete to be a Medicare HMO or a Medicaid HMO (brief aside, worth mentioning the UnitedHealthCare’s most profitable line of business is their Medicaid HMO). This is, I think, a significant difference from the Obama plan (and something like the Baucus plan, but I’ve never heard of his plan till reading this). I think Hacker somewhat undersells this as it is competition between private insurance companies, to the benefit of the public, built on a public framework.

The private insurance companies of the world embrace the opportunity of being managed care carriers for Medicare and Medicaid because they can combine the apples and oranges Hacker is talking about. When you’re a Medicare HMO or a Medicaid HMO, the ways to differentiate yourself from the Medicaid HMO down the street are somewhat limited but they all ultimately benefit the consumer, be it better network, better benefits, etc. The private insurance companies get a per member per month payment from either Medicare of Medicaid and then take that money and, basically, promise to do a better job. They use the provider networks they’ve already built, and sometimes they’re even able to use the same contracts they negotiated for their employer-based products. They even add benefits that aren’t required (I’ve worked for both a state Medicaid agency and a Medicaid HMO so I’ve seen both sides). They’re already out there building brand recognition for the employer-based products and they’re already sending provider reps into all the doctors’ offices and hospitals anyway. And, as the economy shifts, they can lean on the private side or the public side as needed.

Also, Medicaid HMO’s and Medicare HMO’s are run by private companies but have ridiculously onerous reporting requirement to their respective public payer. You don’t lose the information in the way Hacker fears on the private side. I disagree with Hacker somewhat on his concern about information. I think there are oceans of information out there in HEDIS that just need to be opened up more (run by NCQA, who are probably salivating at having some monstrously large role in Comparative Effectiveness, being as that’s precisely what they do for the public/private payer world already, though not so much ‘clinical’ effectiveness as outcome-based effectiveness).

Basically, creating a new public payer to be funded by the feds, but administered by private companies according to rigid government oversight (just like Medicare and Medicaid), gets the Blue dogs and your Mitt Romneys, your Heritage foundation, and so on. Massachusetts stopped short of becoming totally socialist (admittedly not far to go) by making the ‘connector’ plans, well, sort of shitty plans (but hey, they were better than no plans and the plans did, in their defense, have minimum coverage requirements) and thus somewhat prevented leakage from covered lives on the employer-based side to the connector plans. These new plans fell somewhere between individual plans and small group plans in terms of cost/risk and, though it was a gamble, didn’t end up costing as much as some feared they would.

I want to be very, very careful not to seem as if I’m saying that the Massachusetts Model is made of kittens and rainbows. It was executed incorrectly in many ways and, remember that Massachusetts had about ½ the national average of uninsured as the rest of the nation when they started. It’s still sort of working though and isn’t a bad rough draft.

I don’t know that I agree with Hacker that value is created by including a private/public choice (I’m also not sure if by ‘public choice’ he means the freedom to choose from public plans administered by private insurance companies). Though, to a certain extent, it doesn’t matter. Whoever the new payer is to fill in the gaps, if it follows a managed care model, remember that managed care organizations get their value from their network; and if it is mandated that all providers accept all managed care carriers, you water down the private insurances value in participating if you mandate that one can’t have a better network than the other. The only solution (as Medicaid and Medicare have seen), is for a public fee-for-service Medicaid or Medicare to serve as a last resort. This isn’t 100% applied though, as you can find several urban pockets throughout the country where there is no fee-for-service option for Medicaid and you can only get managed care Medicaid. The new public payer should have some sort of fee-for-service entity, albeit small, and lots of free market competition for the managed care business/customers.

Medicare, conversely, shares its records, and they've been responsible for some of the most important health policy insights in recent years. The Dartmouth Atlas findings that more specialists mean more care but not better health -- an insight that has revolutionized how we think about health reform -- came from Medicare payment data.

Medicare is also the most common site for most delivery reform analysis. This is not because they're the only ones who innovate, but because they're the only ones who will allow researchers to study the outcome of those innovations. The Medicare disease management pilot, for instance, was a failure. That was an important lesson. But we'd have never known that if the test had been carried out be Aetna. Aetna, after all, doesn't want to be associated with failure.

This isn't true; I can't even begin to say how not true this is. Medicare has been playing catch up to all sorts of private industry reforms, and Medical Directors, let me tell you, share a lot of data with each other.

I think Ezra's confusing information that helps insurers price products, which they do keep proprietary, with information that helps insurers save dollars on payouts. Medicare's payout system, up until very recently, was entirely not about outcomes: you did something, you got paid for it. The only fraud they could detect was... if you didn't do what you said you did (the corollary being, sometimes they could find out that what you did was unnecessary). Private insurers can't be that undifferentiated. It matters not just what you did... but if it was the least expensive way of doing it.

Insurer innovations to reduce cost of care, ultimately, help the whole industry; if you can get docs to change practice methods - a very, very big step - then you can really affect how much things cost. That's not only in Aetna's interest, it's in Kaiser's, and Blue Cross Blue Shield's... and on and on. Mutual interests... shared data.

What has driven Medicare to actually question outcomes is that costs have risen exponentially and people within health care (including Medicare officials) know that private insurers are innovating faster on practice changes that drive lower costs. Hence, Medicare is following, not leading, improvements and adaptations to influence practice. These things are not as hidden as this post suggests, and private insurers actually want Medicare to improve... because their fees are the price guidance for the industry.

And that's why Hacker's backed into the right conclusion: Medicare isn't the answer because it innovates; Medicare is the answer because it is far larger than the other players, and can set the ceiling on prices. Private insurers set the floor. What you want is for more people to have a choice between the two. A public/private hybrid is what gets you there.

Another question:

Medicare has a strong history of using monopsony power to lower prices, but a poor history of using utilization controls. Most experts believe that the key to arresting cost growth is restricting utilization, not further price discounts. What then does public sector health care offer that solves our current cost crisis?

How do you account for cost-shifting?

The biggest cause of cost shifting is unreimbursed care. Get near universal coverage and providers won't have to cost shift.

Medicare's payment system has several mechanisms in place to make sure that care is adequately reimbursed. Case mix indexing, wage indexing, outlier payments and disproportionate share payments are all designed to make sure that reimbursement covers the cost of care.

The private insurance companies of the world embrace the opportunity of being managed care carriers for Medicare and Medicaid because they can combine the apples and oranges Hacker is talking about.

Insurers embrace the opportunity to provide Medicare HMO plans because the regs were designed to massively overpay them for Medicare enrollment.
As for Medicaid, it depends on the state. Insurers aren't lining up to provide MediCal HMO plans in California.

Ooohh, good points flory.

Most of the cost-shifting I've seen has really been on the provider side. When a hospital gets a patient admitted on an emergency basis and that patient's insurance in non-par with them. That's gold baby. That's how you get $1 million NICU babies that prompts the HMO's reinsurance company to open a special file on the kid. That kid makes up for all the poorly negotiated DRG's the hospital has with every other insurance company, public and private.

And I love the disproportionate hospital share program. Man, if only more people knew how this used to work. This is from a paper by the National Health Policy Program (Mechanic):

"“A state collects $10 million from a hospital through a provider tax, donation, or transfer. The state then makes a $12 million DSH payment back to the hospital and draws down $6 million in federal funds (assuming a 50 percent federal matching percentage). At the end of the transaction, the hospital has a net gain of $2 million ($12 million DSH payment minus the $10 million donation) while the state’s net gain is $4 million ($10 million donation plus $6 million federal match, minus $12 million DSH payment),”

anonymiss we know for a fact Medicare and Medicaid do exactly as you questioned, there has been numerous studies to prove and quantify it. A good one was done by Milliman, a firm truly respected in healthcare unlike Ezra's phony Levin Group Gold standard;

http://www.managedcaremag.com/archives/0612/0612.costshift.html

"Blue Shield of California found that it could reduce premiums by about 10 percent if hospitals earned an equal amount of money for services charged to government and to private payers. "Through our silence we are allowing this issue to continue to grow. It is hurting the ability of health insurance plans to provide competitive products to purchasers, and it's hurting companies' effectiveness in terms of competing globally."
Blue Shield of California and Premera Blue Cross in Mountlake Terrace, Wash., have worked with Milliman, the actuarial and consulting firm, to evaluate exactly how much more private health plans have to pay in their states because of government underpayments. In Washington, where Medicare pays about a quarter less than private insurers, hospitals in 2004 charged private payers $738 million to make up for underpayments, while physicians charged private payers $620 million to make up for shortfalls, putting the total at close to $1.4 billion, according to the Premera study. That translated to $902 per family insurance policy, or 13 percent of all commercial hospital and physician payments.
Milliman found similar results in California, where employers and employees paid about $951 per family insurance policy to cover losses from Medicare and Medi-Cal. The cost shift rose from 3.6 percent of premiums in 2000 to 9.5 percent in 2004."

As Medicare and Medicaid has had to cut more money they shifted more cost to private insurance, thus the magical private healthcare can't control cost graph. If Ezra wanted to be factual he would have titled it Private Insurance can't control government cost shifting.

There is also the large and growing larger issue of government forcing people off public plans onto private plans. For example Ohio requires employers to cover the over age disabled dependents of employees so they could get them off Medicaid. Why does a 80 life employer have to pay $250,000 a year in claims for 30 year old "dependent"? Complying with the law apparently makes you inefficient in Ezra's book.

"Medicare's payment system has several mechanisms in place to make sure that care is adequately reimbursed."

Flory your the only person in the world who thinks that. Have you never read a GAO or HHS audit? Check out the 2007 PERM and claim Medicare has cost controls.

It's pretty crazy that health insurance industry lobbyists are getting paid to write comments on Ezra's blog.

Ezra - have you written about the Milliman report on cost shifting? I'd be interested in your thoughts. Charlie Baker wrote about it in December here.



As far as the public plan, my biggest question is: how much will it cost and how? Medicare premiums are obviously low because we've been 'pre-paying' all our lives.* Without this mechanism, a public plan would only be able to keep premiums low in one of four ways:

1. restrict coverage, network, or services (for the record, I'm in favor of this if it relies on evidence/quality)
   

If I were an insurer, #1 wouldn't scare me - I could offer a competitive product. #3 wouldn't scare me - it won't make a big difference in premiums. #2 and #4 - where government flexes its muscle to get a competitive advantage - would be the biggies.

*technically not pre-pay, but you know what I mean

I like the HCFA plan because I think it's a good transition. The plan is called Health Care for America, it’s a proposal put together by the political scientist Jacob Hacker with the support of the Economic Policy Institute. I’d suggest reading Thinking Big to get a better idea of the plan, but the basic idea is that employers pay money into a public fund, enough to cover their workers. The public fund should have quality coverage for all, including preventive care. Workers get to choose - keep your insurance, choose a different private plan, or join a public health insurance plan without a private insurer middleman, pick your healthcare providers and doctors. Employers choose too. Those who prefer not to shoulder the burden of providing coverage as good as the law requires can decide to enroll their workers in the public plan at a modest cost. HCFA and Medicare would function as a single nationwide insurance pool covering close to half the population. So basically either the public plan attracts most Americans, and our system gradually evolves into single-payer or because the floor prevents a race to the bottom, the public-private competition raises the bar on care and efficiency, improving quality and cutting costs, even in the private insurance plans. The standards would be kept by a strong government watchdog. What do you think?